Why the Hansen Technologies Limited share price shot up 7% today

This morning software billings business Hansen Technologies Limited (ASX: HSN) reported a net profit of $28.8 million on operating revenue of $230.8 million for the financial year ending June 30, 2018. The profit and revenue were up 21% and 32% over the prior corresponding year. The group’s EBITDA (operating income) came in at $58 million on a healthy margin of 25% of total revenue.

The company will pay a final dividend of 4 cents per share (including a 1 cent per share special dividend) taking full year dividends to 7 cents per share on earnings of 19.4 cents per share. The stock has climbed 7% higher to $3.61 in response to the profit update and news of a special dividend.

As at year end net debt stood at just $4 million despite the recent $94.7 million acquisition of Scandinavia-based billing systems business Enoro, with around 65% of the group’s revenue now of a recurring nature.

Hansen’s CEO, Andrew Hansen, commented on the result: “2018 has been a record year for Hansen. A highlight was the acquisition of Enoro, our ninth-earnings accretive acquisition in the last 10 years, and our largest acquisition to date, which continues our long-term expansion strategy of expansion via acquisition”.

The group maintained guidance for a flat FY 2019 as revenue is expected to fall slightly due to lower levels of non-recurring license fees and the recent termination of a call centre contract. Costs are expected to edge marginally higher over the year ahead, which suggests investors should not expect profit growth over the short term anyway.

However, since FY 2014 the group has grown earnings per share at compound annual growth (CAGR) rate of 18%, with revenue climbing at a CAGR of 25% thanks partly to management’s successful acquisition strategy.

It’s notable that the strategy has resulted in neither a debt blow out or flat earnings per share growth and as such this is a business that commands respect for its operational performance and track record of delivering for investors.

Due to its performance and attractive economics shares don’t come cheap at 19x trailing earnings, but nor are they expensive relative to many other software-as-a-service stocks on the ASX like Xero Limited (ASX: XRO) or Altium Limited (ASX ALU).

Importantly, this remains a founding-family-led business and investors taking only a medium term 3-5 year view could enjoy consistent double-digit returns on a total return basis from here in my opinion.

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Motley Fool contributor Tom Richardson owns shares of Altium and Xero. The Motley Fool Australia owns shares of Altium, Hansen Technologies, and Xero.

You can find Tom on Twitter @tommyr345

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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